The final and ultimate round of the Crisis that begin in 2008 will occur when faith is lost in the Central Banks.
The goal of equality of opportunity is both absurd and vicious. Achieving it would require that children all be raised in the same environment and have the same genetic inheritance. In contrast, what we should actually strive for is the freedom of opportunity. Freedom of opportunity means the ability to exploit the opportunities afforded by reality, without being stopped by the initiation of physical force, in particular the initiation of physical force by the government or that takes place with the sanction of the government.
Q: How do you make a small fortune on Wall Street?
A: Start with a large fortune.
~ old investing adage
"The effects on underlying inflation have so far been tepid. What is worrisome is that market participants still do not see consumer price inflation returning to the ECB’s 2% target on a sustained basis, let alone going above it, over any reasonable time horizon," Goldman says. And while the bank is ultimately confident that the Goldmanite in charge of the ECB will succeed in driving up inflation over time, the market would be wise to note that the US and Japanese experience with QE don't provide much in the way of empirical support for that contention.
"We remain constructive on the US for three reasons: 1) economic data should improve in the next few quarters; 2) the Fed does not seem to be in any rush to move early and a June rate hike seems unlikely; and 3) while investors are focused solely on the first rate raise, we think the overall path higher will be gradual, in contrast to previous rate shifts. These factors should create an environment where growth improves and monetary policy stays flexible, which is generally good for equities (higher multiples notwithstanding). We may follow last year’s playbook and ignore the old adage to “sell in May and go away.”
Investors are clearly in a bit of a no-man’s land of market narrative, with the dollar weakening and U.S. corporate earnings slipping. Market participants, like all pack animals, appreciate clear direction and leadership – and we don’t have much of either right now. When considering how they will react, we can compare the two competing frameworks for understanding market behavior: the "Random Walk hypothesis" and the "House money effect." The first states that markets move in random patterns, with prior activity having no bearing on future price action. The latter shows that individuals do actually consider prior gains and losses when making economic decisions. Let’s just hope investors hold to their belief that it’s the house’s money at work here, and that they don’t walk randomly out of the market.
Sabre-rattling much? For the first time in history, Chinese and Russian navies will begin a significant joint naval exercise in The Mediterranean Sea in mid-May. As RT reports, Chinese Defense Ministry spokesman Geng Yansheng, "The aim is to deepen both countries' friendly and practical cooperation, and increase our navies' ability to jointly deal with maritime security threats," but diplomatically added "these exercises are not aimed at any third party and have nothing to do with the regional situation." Against a background of this week's "upgraded Japan-American military relationship" following Abe's visit to Obama, as one analyst notes, "the geopolitical significance of its exercising alongside Russia will not be lost on the U.S. and NATO."
- Record month ends in pain as biotech, small-caps, Apple tumble (BBG)
- Japan inflation rises for first time in nearly a year (WSJ)
- US Navy starts to accompany ships in strait where Iran seized cargo carrier (WSJ)
- Russia may be readying for new Ukraine offensive: NATO commander (Reuters)
- Big banks use loophole to avoid ban (WSJ)
- China April official PMI shows factories struggling to grow (Reuters)
- CME suspends traders for alleged Sarao-like manipulation (BBG)
Holidays in Europe and Asia left things quiet overnight after some traders used the last day of April to frontrun the old "sell in May and go away" market adage. Market closures also kept the Chinese day trading hordes from using a tiny beat on the official manufacturing PMI print as an excuse to pile more money into the country's equity mania, while Japanese shares ended mostly unchanged as investors fret over when the BoJ will deliver the next shot of monetary heroin. In the US we'll get a look at ISM manufacturing and the latest read on consumer confidence as we head into the weekend.
Yellen... AND Bernanke!
Hookers for Brazilians, and MiGs for Russians... what cost is your country obsessed with?
"The Q1 US GDP data was a major disappointment to the market as business investment declined due to the intensifying US profits recession. Only the biggest inventory build in history stopped the economy subsiding into a recessionary quagmire. The US economy is struggling and the Fed will ultimately re-engage the QE spigot. Talk is growing that China will soon be doing the same as local authorities struggle to issue debt. But this week we want to focus on Japan, having just made my fist visit to that fine nation for over a decade! Japan, the third largest economy in the world, is also in trouble (see chart below) and will soon be increasing its off-the-scale QE programme to an out-of-this-world QE programme." - Albert Edwards
U.S. and U.K. GDP slowed very sharply in first quarter of 2015. Latest data confirms the rapid slowdown despite stock markets booming in the UK, U.S. and globally. This highlights the major disconnect between the real economy and a financial sector intoxified by easy money.
The biggest overnight story was neither out of China, where despite the ridiculous surge in new account openings and margin debt the SHCOMP dipped 08%, or out of Japan, where the Nikkei dropped 2.7%, the biggest drop in months, after the BOJ disappointed some by not monetizing more than 100% of net issuance and keeping QE unchanged, but Europe where for the second day in a row there was a furious selloff of Bunds at the open of trading, which briefly sent the yield on the 10Y to 0.38% (it was 0.6% two weeks ago), in turn sending the EURUSD soaring by almost 200 pips to a two month high of 1.1250, and weighing on US equity futures, before retracing some of the losses.
Japanese stocks and USDJPY are back below the lows of the US day-session following The Bank of Japan's decision not to stimulate further (despite all the collapsing economic evidence one might need to do such a thing). Investors were clearly hoping for moar (even if economists weren't). With GDP expectations collapsing, BoJ still voted 8-1 not to increase QQE keeping monetary base growth expectations flat. The result is a 500 point drop in The Nikkei from this morning's highs and around 1 handle drop in USDJPY... for now.